Firms eager to monetize Mumbai land assets struggle to find buyers

By | November 8, 2016

Momentum for corporate land deals has slowed down in the past year because of valuation gaps and expectation mismatches, say property advisers, brokers

The slump in the Indian real estate market, along with legal issues and delays in regulatory approvals, has significantly impacted corporate land deals in the past one year. Companies looking to dispose of their land assets to reduce debt have either put off plans or are struggling to find the right buyers, according to property advisers, brokers and company officials.

For instance, large companies such as GlaxoSmithKline Pharmaceuticals (GSK), Essar Group and Hindalco Industries Ltd have been looking to monetize some of their land parcels but haven’t been able to find any takers.

GSK is making its second attempt to sell its 60-acre land parcel at Thane in Mumbai. The land was on the block in 2014 but the company shelved the sale plan as it was not offered the price it expected and also due to legal issues associated with the land.

In August, GSK once again invited bids for the land, according to two people aware of the development who did not want to be identified. The estimated value of the property is Rs1,400-1,800 crore.

In a filing with the BSE on 31 August, GSK said it was considering options for divesting its land. However, it said it has not yet shortlisted a buyer or entered into a sale agreement.

Aditya Birla Group firm Hindalco has put on hold its plan to sell around 33 acres in Kalwa (near Thane). The company was looking to sell the land for around Rs1,500 crore through a bidding process last year but has remained off the market in the past year.

Both GSK and Hindalco declined to comment on the status of the land sale.

“We talked very hard to many developers. We discussed back and forth with many of them but didn’t find sufficient interest for the process,” said a person who was closely involved in selling the Hindalco land, speaking on condition of anonymity. He named land title issues and the slowdown in the market as factors impacting the sale. “It was a complicated deal and also the market was not in a good space. If the market was better, people would be more willing to take those risks,” he said.

Property advisers and brokers said the momentum for corporate land deals has slowed down in the past year because of valuation gaps and expectation mismatches, apart from regulatory hurdles and legal issues associated with these properties.

“Acquisition of land across asset classes has slowed down. This is due to multiple reasons such as valuation gap, anticipated regulatory hurdles, proposed change in development plan (in Mumbai) etc. The preference is more towards development management and joint venture/joint development,” said Gautam Saraf, managing director (Mumbai), at global property consultant Cushman & Wakefield.

Developers are not keen on taking risks or shelling out huge funds for any outright purchase of big land parcels, another Mumbai-based land broker said on condition of anonymity. “This definitely slows down the land buying process a bit,” the person said.

Essar Group has not found a buyer for an 8.3-acre land parcel in Thane that it has been looking to monetize for the past three years. The property, known as Wellman land as it earlier belonged to Wellman Hindustan Pvt. Ltd, was acquired by Essar Group. The Mumbai-based conglomerate planned to build a residential project three years ago but later shelved the plan.

“The reality is, there is a mismatch in terms of the sale price and what the buyers are willing to pay. And especially in Thane area, there is surplus land supply. Besides, prices of apartments are not appreciating as most investors have disappeared,” said Sanjay Mehta, head of operations, Equinox Realty, the real estate unit of the Essar Group.

Although land prices have fallen in some places, the rates are still too high for projects to be viable, said Pankaj Kapoor, managing director at property advisory firm Liases Foras.

“There are fewer number of takers at current prices and people are waiting for a moderation in prices. The property rates are so high that there are no sales happening. Developers are more willing to do joint ventures. And as such there is a humongous inventory available in the market and people are wary about the inventory,” he said.

In the recent past, Mumbai’s Kingfisher House, the corporate office of the grounded Kingfisher Airlines, also failed to generate any interest, despite a 10% reduction in its base price to Rs135 crore after the first e-auction for the property failed in March.

Brokers and property advisers attributed the failure to the unrealistic expectations of a consortium of Kingfisher’s lenders, led by State Bank of India. The property was put up for auction as part of their efforts to recover dues totalling over Rs9,000 crore from the defunct airline founded by liquor baron Vijay Mallya.

Source: Livemint